An Empirical Study of Currency Exchange Rates via the VaR Models
Date Issued
2008
Date
2008
Author(s)
Wang, Ming-Hsiang
Abstract
Exchange rates play an important role in the international trade, so how to manage the exchange rate risk well is an essential topic to financial institutes, enterprises and even the investors. The main purpose of this study is to apply the concept of VaR to exchange rates, we use historical simulation method, Monte Carlo simulation method and variance-covariance method containing equally weighted moving average approach, exponential weighted moving average approach and GARCH model to measure the risk from the exchange fluctuations and take Taiwanese Dollars against major currencies, such as U.S. Dollars, British Pounds, European Euros, Canadian Dollars, Japanese Yen and Australian Dollars as our empirical data. Moreover, we use some methods including mean, root mean squared error, back-testing, proportion of failure and proportion of failure test to evaluate the applicability of different models, meanwhile, compare the VaR of different currencies.he following are the conclusions of this study:.The VaR of U.S. dollars is the highest..The VaR of Australian dollars is the lowest..Exponential weighted moving average approach produces the lowest VaR estimates in most cases, so it is more efficient than other models. .If the structure of data has no significant change, equally weighted moving average approach and historical simulation method are worth to consider..At 95% confident level, GARCH model is more accurate than exponential weighted moving average approach..There is a trade-off relationship between efficiency and accuracy..Historical simulation method and Monte Carlo simulation method have comparatively fine performance of accuracy while GARCH model and exponential weighted moving average approach have relatively good performance of efficiency.
Subjects
VaR
exchange rate
back-testing
GARCH model
Riskmetrics model
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-97-R95323018-1.pdf
Size
23.53 KB
Format
Adobe PDF
Checksum
(MD5):54e74c997338b3020e6fe18a0c79fd8e